The cost basis of an investment is an investor’s initial stake in an investment, which is typically the initial price they pay to acquire that investment. This figure is used as a benchmark to determine the amount of any taxable realized capital gains.

For instance, if Sarah pays $500,000 to acquire a small commercial building, then sells the building five years later at an appreciated price of $800,000, she has realized a capital gain of $300,000, and will likely owe tax on those gains.

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